multi0page - Public Disclosure Authorized Policy Research |...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Policy Research | 4 WORKING PAPERS Transition and Macro-Adjustment Country Economics Department The World Bank November 1992 WPS 1049 Money Demand and Seignorage-Maximizing Inflation William Easterly Paolo Mauro and Klaus Schmidt-Hebbel The elasticity of substitution in transactions between money and bonds is a crucial determinant of the seignorage-maximizing inflation rate and of whether the semi-elasticity of money demand with inflation increases with inflation. Policy ResearchWodringPapes disseminatethefindingsofwork in progress and encouragetheexchangeofideas among Bank staffand all others interted in develop netissues. Thesepaprs, distributed bytheResearch Advisory Staff,cary thenamesoftheauthors.reflect only dicrviews, andshouldbe used and cited accordingly. The findings, interpr tations, andoonclusions are theauthors' own.Theyshould not be attnibuted to the World Bank, its Board of Dirctors, its management, or any of its member countries. Public Disclosure Authorized
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Policy Research Transition and Macro-Adjustment WPS 1049 This paper- a product of the Transition and Macro-Adjustment Division, Country Economics Depart- ment- is part of a largereffort in the department to assess the relationship between fiscal deficits, money creation, and inflation. The study was funded by the Bank's Research Support Budget under research project "The Macroeconomics of Public Sector Deficits" (RPO 675-3 1).Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Rebecca Martin, room NI 1-021, extension 31448 (November 1992, 32 pages). There is widespread consensus among econo- Individual country estimates and cross- mists that high inflation is often caused by the country panel regressions based on annual data government's need t raise seignorage to finance from 11 high-inflation countries provide empiri- high budget deficits. Depending on the shape of cal support for their model. Relaxing the hypoth- the money demand function, steady-state esis of a constant semi-elasticity leads to esti- seignorage may follow a Laffer curve, where mates showing that, on average, the semi- seignorage first rises and then falls with higher elasticity of money demand with inflation inflation. If so, a rate of inflation exists that increases with inflation. maximizes steady-state inflation. The results imply well-behaved Laffer Conventional estimates of the seignorage- curves that peak at plausible inflation rates; maximizing rate of inflation often make use of under the Cagan form, there is no seignorage the Cagan form, which implies a constant semi- Laffer curve. elasticity of money demand with inflation.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/13/2012 for the course ECON 101 taught by Professor Malrani during the Spring '05 term at Bunker Hill.

Page1 / 38

multi0page - Public Disclosure Authorized Policy Research |...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online